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Exemption from Service Tax to SEZ's

CA Prateek Marlecha 
on 05 July 2013

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CBEC on July 01, 2013 issued notification no. 12/2013 granting exemption from service tax to units located in SEZ or developers of SEZ for the services used in their authorized operations. The new notification issued supersedes the earlier notification no. 40/2012.

The new notification provides two options to units located in SEZ or developer of SEZ (hereinafter referred to as eligible persons):-

1. Exemption ab initio

2. Exemption by way of refund

EXEMPTION AB INITIO

Under this eligible persons shall get an approval by the Approval committee of the list of services for the use in the authorized operations (hereinafter referred to as specified services). The specified services should be used exclusively for the authorized operations. Once the approval is obtained, the following procedure has to be followed:-

a. The eligible person shall furnish a declaration in Form A-1, which shall be verified by the Specified Officer of the SEZ, along with the list of specified services. The eligible person also undertakes that in case the specified services are not used exclusively or not used for the authorized operations, it shall pay to the government an amount that is claimed by way of exemption from service tax and cesses along with interest.

b. The jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise shall issue an authorization in Form A-2 to the eligible person.

c. On the basis of above authorization, the service provider of the eligible person shall provide services without charging service tax.

d. The eligible person shall file a quarterly statement in Form A-3 to the jurisdictional Superintendent of Central Excise.

EXEMPTION BY WAY OF REFUND

Exemption by way of refund shall be provided to eligible persons if:-

1. Specified services are not exclusively used for the authorized operations; or

2. The specified services on which ab-initio exemption is admissible but not claimed.

The procedure to be followed for availing the refund is as follows:-

a. Service tax paid on common services for authorised operations and for operations in the DTA shall be distributed among the eligible person and the DTA unit in the manner prescribed in Rule 7 of the Cenvat Credit Rules, 2004 (distribution of credit by input service distributor).

b. The eligible person shall avail refund of the services on which ab-initio exemption was admissible but not claimed and the amount distributed as per above.

c. If the eligible person is registered under the Central Excise Act or the Finance Act, shall file the quarterly refund claim in Form 4-A with the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise.

d. The amount of service tax being claimed as refund should have been paid to the person liable for paying service tax or in the case of reverse charge the service tax should have been paid by the eligible person.

e. Refund should be filed within one year from the end of the month in which actual payment of service tax was done by the eligible person to the person providing the service or such extended period as may be permitted.

f. If the eligible person is not registered under Excise Act or the Finance Act, shall make an application for registration before filling the refund claim.

The eligible persons availing exemption or refund shall maintain proper account of receipt and use of the specified services. Also the eligible persons have the option not to avail the exemption and instead take Cevnat credit on the specified services in accordance with the Cenvat credit rules.

Difference between the earlier notification and the new notification:-

a. The earlier notification stressed on the need that the specified services must be wholly consumed within the SEZ for the authorised operations. It provided that exemption shall be provided only for those services for which the place of provision of service will be within the SEZ as per the Place of provision of service rules. In the new notification, there is no need for the service to be consumed within the SEZ. Exemption shall be provided as long as the services are used for the authorised operation of the SEZ. Therefore, the concept of ‘location of use’ has been substituted for 'purpose of use' of the services.

b. Refund application shall be filed in Form A-4 and need not be certified by Statutory Auditor or any other auditor.

c. Refund of service tax on specified services that are common to authorised operation and DTA operation shall be distributed / apportioned as per rule 7 of CCR unlike the formula prescribed under earlier notification.

d. A common refund can be filed for more than one unit.

e. Form for claiming ab-initio exemption application shall be made in Form A-1

f. Authorization for the above shall be granted in Form A-2

g. SEZ units needs to file a quarterly statement in Form A-3 furnishing the details of specified services received and claimed exemption ab-initio.

CA Prateek Marlecha


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